Financial analysts must be wary of business acquisitions accounted for as pooling of interests because this method tends to inflate the

Question

Quizplus · Accepted Answer

Pooling of interests method involves combining the balance sheets of the two companies, which results in the elimination of certain assets and liabilities. This, in turn, can lead to an artificial boost in ratios that use total assets and total equity as denominators, such as rate of return ratios. Therefore, financial analysts must exercise caution while interpreting these ratios while analyzing a business acquisition accounted for as pooling of interests.

Financial Analysts Must Be Wary of Business Acquisitions Accounted for as Pooling